IDX Composite came under sharp pressure after Morgan Stanley Capital International (MSCI) proposed reclassifying Indonesia’s stock market from an emerging market to a standalone market. The situation warns capital market authorities to strengthen transparency and information disclosure to restore investor confidence.
Professor R. Agus Sartono of the Faculty of Economics and Business at Universitas Gadjah Mada (FEB UGM) said transparency is a fundamental prerequisite for an efficient capital market, facilitating transactions between parties with surplus funds and those seeking financing. Therefore, information disclosure is essential to address information asymmetry, prevent insider trading, and avoid asset price manipulation.
“Transparency is the lifeblood of a capital market and one of its fundamental requirements. Without information disclosure, a capital market cannot function efficiently,” he said on Thursday (Oct. 22).
Limited information disclosure makes it difficult for investors to estimate the fair value of assets such as stocks and bonds. This uncertainty increases investment risk because investors must make decisions with inadequate information.
“As a result, investors may demand a higher risk premium, potentially causing asset values to decline or forcing assets to be sold at a discount,” he said.
Since early 2026, MSCI has warned stock market authorities to improve transparency, particularly on suspected coordinated trading and beneficial ownership disclosure. Further improvements include increasing the proportion of publicly traded shares, known as free float, to 15% and disclosing shareholdings exceeding 1%.
MSCI’s proposal to reclassify Indonesia’s stock market as a standalone market underscores the need for concrete action by capital market authorities to address transparency concerns and maintain investor confidence.
In response to the proposed reclassification, Professor Sartono identified capital outflows as a potential risk. Global investment funds managed by major asset managers could be redirected to other, safer markets. This could intensify selling pressure on Indonesian stocks, particularly those of large-cap companies in the banking and energy sectors, potentially reducing corporate valuations.
Moreover, negative perceptions of Indonesia’s stock market could undermine Indonesian companies’ credibility when seeking commercial loans overseas.
“Once again, the cost of funds rises, followed by a slowdown in lending. Economic growth is disrupted, and other significant consequences may include rising unemployment and declining public purchasing power. This can become a vicious cycle,” Professor Sartono said.
Beyond the stock market, various external and domestic factors influence the weakening rupiah. Externally, the pressure is linked to sentiment surrounding Indonesia’s stock market, US Federal Reserve interest rate policies, and expectations of further rate increases amid high inflation in the United States.
Domestically, the rupiah’s depreciation is also closely linked to concerns about the sustainability of funding for large-scale government programs, the state budget deficit, and the debt service ratio.
A weaker rupiah inevitably increases the burden of servicing foreign debt and raises the cost of importing raw materials and energy. These could further increase industrial production costs.
“Industries have few options. Raising selling prices will not help because people’s purchasing power is weak,” he said.
In closing, Indonesia’s current financial market turbulence cannot be separated from a range of interconnected factors. Restoring investor confidence must therefore be a top priority, accompanied by concrete measures to improve transparency and capital market governance and prepare for further market deterioration.
“We are facing multiple factors that happen to be interconnected. Restoring confidence is the priority, and it is equally important to prepare for the possibility that things may get worse,” he said.
Author: Agito Sitepu
Editor: Gusti Grehenson
Post-editor: Jasmine Ferdian
Photo: Magnific